Euro Hits 17-Month Low

The euro dropped 0.36 per cent to $1.1211 after falling as much as 0.8 per cent to $1.116, its weakest since May 2025. This marks the single currency's fourth straight weekly fall against the dollar, during which it has tumbled 3.1 per cent.

French government bonds have been under pressure due to expectations of higher policy rates and rising political uncertainty ahead of the 2027 election. The yield gap between French bonds and safe-haven bunds widened to nearly 160 basis points on Friday, the largest since the euro zone's sovereign debt crisis in 2011.

Erik Bregar, director of FX and precious metals risk management at Silver Gold Bull in Toronto, said the market is rejecting France's 2027 budget. He noted that with an election coming up, it is unlikely that anyone will vote for fiscal austerity.

Spanish Prime Minister Pedro Sanchez has called a snap election for November 29 in an effort to increase his parliamentary support after lawmakers rejected proposals to address a housing crisis. This adds to the political turmoil in the region.

The euro's decline is also attributed to US economic data showing inflation pressures. The single currency is coming off its longest weekly streak of declines since May 2025.

French bonds found some relief at the start of the trading week, with yields a touch lower and the spread between French and German borrowing costs narrowing. However, both remained at elevated levels.

The yield gap between French bonds and safe-haven bunds was last down about 2 basis points to 136. This gap was the largest since the euro zone's sovereign debt crisis in 2011.

Market expectations for a rate hike at the next meeting have also contributed to the euro's decline. The situation is being closely monitored by investors and economists.